LOCKUP AND LEAK-OUT AGREEMENT
THIS LOCKUP AND LEAK-OUT AGREEMENT (the
“Agreement”), entered
into effective the 24th day of
July 2009, (the “Effective
Date”) is by and between Desert Hawk Gold Corp., a Nevada corporation
(the “Company”), and
Xxxxxxx Mining Company a Utah corporation (the “Shareholder”).
RECITALS:
WHEREAS, the Shareholder acquired
shares of common stock of the Company pursuant to the terms of a Mining Venture
Agreement dated July 24, 2009, by and between the Company and the Shareholder
(the “Mining Venture
Agreement”), whereby the Shareholder agreed to accept such shares subject
to the condition that such shares would be subject to certain lockup
provisions;
WHEREAS, the Company is attempting to
seek financing for the development of the mining claims covered by the Mining
Venture Agreement;
WHEREAS, management of the Company and
the Shareholder reasonably believe that the ability to successfully raise such
funds would be severely hampered by the unregulated overhang in the market of
the shares owned by certain shareholders of the Company, including the
Shareholder;
WHEREAS, the Shareholder believes that
the principal method for increasing the value in its shares is to raise the
funding necessary to implement the terms of the Mining Venture
Agreement;
WHEREAS, to assist the Company in its
funding process and in creating an orderly market for its shares, the
Shareholder is willing to lockup its shares, subject to the terms of this
Agreement;
NOW, THEREFORE, in consideration of the
mutual terms and conditions of this Agreement, the parties hereto agree as
follows:
1. Shares Covered by this
Agreement. This Agreement shall pertain to all of the 500,000
shares originally issued to the Shareholder by the Company pursuant to Section
4.5 of the Mining Venture Agreement and any shares of common stock received by
the Shareholder from the Company pursuant to any split-ups, stock dividends or other
increases or reductions affecting such shares (the
“Shares”). This Agreement shall not apply to shares of common stock
of the Company acquired by the Shareholder from any other
source.
2. Lockup of
Shares. Until one year following the filing of a registration
statement (the “Registration
Statement”) by the Company with the Securities and Exchange Commission
(the “SEC”), the
Shareholder hereby agrees that he will not, (and will cause any immediate family
member of (i) the Shareholder or (ii) the Shareholder’s spouse, living
in the Shareholder’s household not to), without the prior written consent of the
Company (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation any short sale), pledge, transfer, establish an open “put equivalent
position” within the meaning of Rule 16a-1(h) under the Securities Exchange
Act of 1934, as amended, (the “Exchange Act”) or otherwise
dispose of any Shares, options or warrants to acquire the Shares, or securities
exchangeable or exercisable for or convertible into the Shares currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3
under the Exchange Act) by the Shareholder (or such spouse or family member), or
publicly announce an intention to do any of the foregoing (the “Initial Lockup
Period”). These restrictions on resale of the Shares shall be
in addition to any limitations pertaining to the resale of the Shares by the
Shareholder pursuant to Rule 144 promulgated by the SEC under the Securities Act
of 1933, as amended. The Shareholder also agrees and consents to the
entry of stop transfer instructions with the Company’s transfer agent and
registrar against the transfer of the Shares or securities convertible into or
exchangeable or exercisable for the Shares held by the Shareholder except in
compliance with the foregoing restrictions.
3. Leak-Out
Provisions. Subject to the lockup provisions of Paragraph 2 of
this Agreement, and subject to compliance with federal and state securities laws
and regulations, including, but not limited to Rule 144 promulgated by the SEC,
the Shareholder may, after the Initial Lockup Period, sell up to 20% of the
original number of Shares (as adjusted for any stock split-ups, stock dividends or
other increases or reductions affecting the Shares) during any
twelve-month period.
4. Term. The
term of this Agreement shall commence on the Effective Date and shall terminate
on the date which is six years from the date of filing the Registration
Statement. Following the term of this Agreement, no further lockup or
leak-out provisions of this Agreement shall apply to the Shares.
5. Default. Should
any party to this Agreement default in any of the covenants, conditions, or
promises contained herein, the defaulting party shall pay all costs and
expenses, including a reasonable attorney’s fee, which may arise or accrue from
enforcing this Agreement, or in pursuing any remedy provided hereunder or by
statute.
6. Governing
Law. This Agreement and the rights and duties of the parties
hereto shall be construed and determined in accordance with the laws of the
State of Utah, and any and all actions to enforce the provisions of this
Agreement, shall be brought in a court of competent jurisdiction in the State of
Utah and in no other place.
7. Successors and
Assigns. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, their administrators, successors and
assigns.
8. Partial
Invalidity. If any term, covenant, condition, or provision of
this Agreement or the application thereof to any person or circumstance shall to
any extent be invalid or unenforceable, the remainder of this Agreement or
application of such term or provision to persons or circumstances other than
those as to which it is held to be invalid or unenforceable shall not be
affected thereby and each term, covenant, condition, or provision of this
Agreement shall be valid and shall be enforceable to the fullest extent
permitted by law.
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9. Interpretation of
Agreement. This Agreement shall be interpreted and construed
as if equally drafted by all parties hereto.
10. Amendment. This
Agreement or any provision hereof may not be changed, waived, terminated, or
discharged except by means of a written supplemental instrument signed by the
party or parties against whom enforcement of the change, waiver, termination, or
discharge is sought.
11. Full
Knowledge. By their signatures, the parties acknowledge that
they have carefully read and fully understand the terms and conditions of this
Agreement, that each party has had the benefit of counsel, or has been advised
to obtain counsel, and that each party has freely agreed to be bound by the
terms and conditions of this Agreement.
12. Headings. The
descriptive headings of the various paragraphs or parts of this Agreement are
for convenience only and shall not affect the meaning or construction of any of
the provisions hereof.
13. Counterparts. This
Agreement may be executed in any number of counterparts and all such
counterparts taken together shall be deemed to constitute one
instrument. Delivery of an executed counterpart of this Agreement by
facsimile shall be equally as effective as delivery of a manually executed
counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by facsimile also shall deliver a manually
executed counterpart of this Agreement, but the failure to deliver a manually
executed counterpart shall not affect the validity, enforceability, or binding
effect of this Agreement.
IN WITNESS WHEREOF, each of the
undersigned has executed this Agreement the respective day and year set forth
below.
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THE
COMPANY:
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Date: August
18, 2009
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By
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/s/ Xxxxxx X. Xxxxxxxxx
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Xxxxxx
X. Xxxxxxxxx, President
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THE
SHAREHOLDER:
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Xxxxxxx
Mining Company
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Date: August
18, 2009
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By
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/s/ Xxx Xxxxxxxx
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Xxx
Xxxxxxxx,
President
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